Good morning …

Precious Metals

Gold held near flat until the second hour of trading in New York on Monday, then began a long slide that carried it as low as $925 on the Comex, followed by some very modest buying that took it to a close at $928.00/oz., down $10.30. Overnight, gold is pushing higher.

Platinum was off in the overseas markets, took a big hit between mid-morning and noon in New York, then went dead flat from there through the Globex, ending at $1205/oz., down $45. Overnight, platinum is sharply higher.

Silver sold off from the far East to the London open, leveled off to the late morning, but then resumed its decline, finally closing near its intraday low at $14.02/oz., down 81 cents. Overnight, silver is trending higher.

With the dollar up again, commodities including the precious metals and oil were off sharply yesterday. All in all, it was just a broadly negative day. Little was spared, including equities, which also took a serious hit.

Even perennial bull James Moore, of TheBullionDesk.com, was forced to write that, “Short-term the metal could extend lower as a result of the dollar.”

John Reade, of UBS in London, concurred, writing that, “We would not be surprised to see further short-term declines, especially in the absence of any material jewelry, physical-investment or ETF demand.”

How do you put a happy face on that? Easy. “However, the current correction is likely to prove beneficial longer-term with the pullback offering investors a chance to enter the market,” Moore said.

Meanwhile, “The market focus this week will be on the summit of BRIC countries tomorrow,” Barclay’s Capital analysts wrote, referring to Brazil, Russia, India and China by the common acronym.

The meeting in Russia, to which the US was pointedly not invited, is expected to focus on the world monetary crisis and the dollar’s role in it. Some think the countries may be preparing a call for a new international reserve currency, although whether they would have enough economic clout to push that remains to be seen.

Currencies and Economic News

In the currency market, the dollar soared against the euro. Late Monday, the euro was trading at $1.378 vs. $1.4022 on Friday.

Marketwatch.com wrote that the buck “got a lift from dollar-friendly comments made by a Russian official and a weekend pledge by finance ministers from the Group of Eight nations to consider strategies for exiting the massive economic-stimulus measures they've undertaken before inflation threats emerge.”

Alexei Kudrin, Russia's finance minister, told reporters Saturday on the sidelines of the G8 meeting in Italy that there was no near-term alternative to the U.S. dollar as the world's leading reserve currency.

Thus, despite tomorrow’s closed-door BRIC meeting, Kudrin seemed to presage an effort by Russia, China and other major holders of dollar reserves to squash talk that could weaken the U.S. currency -- and thereby the value of their reserves.

“Confirmation from Russia that the U.S. remains the world's major reserve currency just one day ahead of the BRIC meeting acted as a catalyst for a market well long of euros,” said strategists at Brown Brothers Harriman.

Kudrin was not alone. In remarks prior to the G8 meeting, Japanese Finance Minister Kaoru Yosano expressed faith in U.S. Treasurys, while IMF Managing Director Dominique Strauss-Kahn said on Saturday that the dollar wasn't weak and that he didn't expect to see a drop in its value.

In sum, these remarks appeared to be part of a “concerted effort to not dollar bash,” said Daragh Maher, currency strategist at Calyon Bank.

Maher also noted that the lack of an agreement by the G8 to publish bank stress tests appeared to be putting added pressure on the euro. European officials seem willing to ignore calls by the U.S., Great Britain and Canada to provide more details about the health of the banking sector in the zone, he said.

Energy

In the energy market on Monday, crude for July delivery pulled back again, closing at $70.62/barrel, down $1.42. July reformulated gasoline added a penny, to $2.053/gallon.

Crude had earlier hit an intraday low of $69.58 a barrel on the Globex.

One might have expected something of a rally off of the post-election turmoil in Iran, but that was downplayed in favor of concern over the supply glut.

“The first reason [for the oil retreat], of course, is the resurgent dollar,” said Phil Flynn, of Alaron Trading. “Then we got the Empire State manufacturing number that was much worse than expected, and that put pressure on oil.”

The Empire State index fell to negative 9.4 in June from negative 4.6 in May, indicating the downturn is widening to affect more firms, according to a report released yesterday by the New York Federal Reserve Bank.

The bigger picture: “Stocks of oil are high all around the world -- which suggests that on a supply/demand basis, oil prices should fall,” said James Williams, of WTRG Economics. “However, crude prices are supported because investors are using oil as a hedge against the dollar and inflation.

Base Metals

The base metals took another bath in blood on Monday. Copper plunged from the pre-dawn hours to the New York open, rallied back to mid-morning, but then sold off again to finish just off its intraday lows at $2.2643/lb., down 8 cents. Nickel fell back to $6.80, held there until mid-morning, but took a second beating from there to end at $6.6247/lb., down 38 3/4 cents. Zinc hit the same morning sell point, going from near even to just off its intraday lows at $0.6972/lb., down 4 3/4 cents. Aluminum rallied late in the day but still shed more than a penny and a half, to $0.7149/lb., while lead also bombed out, dropping 5 cents, to $0.7463/lb.

Copper led the second straight day of major retreat among the industrial metals, as the stronger dollar hammered commodities across the board.

And, as MF Global analyst Edward Meir put it, “The correction is likely to run its course for a little while longer as many metals were overextended on the upside.”

Traders are getting a bit nervous about China as well. That country has been importing copper in massive amounts, swelling Shanghai inventories to 60,647 metric tons last week, the highest level since March 2008.

That gain “may signal that China’s reserve purchases are coming to an end,” wrote Eugen Weinberg, an analyst at Commerzbank in Frankfurt. “There is more than sufficient supply in the market.”

Meir also commented on China, saying that, “We are particularly concerned that the rebound in Chinese demand has yet to show up in the rest of the world, meaning that China's critical export sector will continue to struggle.”

Elsewhere, London stockpile data continued to lend support, with copper inventories monitored by the LME slipping 3,300 metric tons yesterday, to 286,975 tons. But canceled warrants – metal set to ship – declined by nearly 15%.

In company news, BHP Billiton and Rio Tinto’s proposal for a joint Australian iron ore venture is likely to be cleared by the European Commission, UBS said.

But the project “will significantly affect global iron ore supply, so it’s a rightful concern for companies and business circles,” said Yao Jian, spokesman for China’s Ministry of Commerce. China’s anti-monopoly law mandates a government probe into any deal that causes a “certain level of market concentration,” Yao said, but there haven’t been any requests for an investigation yet.

That’s what’s happening … see you tomorrow!


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